Companies are deserting the UK – where’s the vision to stem the flow?

One prediction for 2024 that is guaranteed is the generation of an awful lot of hot air.

There will be a general election and that means a surfeit of politicians sounding off about the state of the economy and British business. The truth, whatever they may claim, is that the economy is stagnant and that far too many companies are deserting the UK, being sold to overseas buyers or choosing to list their shares on foreign stock exchanges.

Most of that interest is coming from the US. Not only, it seems, are we content at being the “51st state” vis a vis our foreign policy, but commercially as well – we’re being quietly subsumed into the giant power.

Research from data provider Beauhurst and investment manager Charles Stanley finds that in the past decade, 2,306 high-growth UK companies have been acquired by overseas owners. A further 44 have ignored the domestic stock market and listed their shares abroad.

These are businesses lost to Britain. Their revenues and tax receipts have gone elsewhere. So has their precious IP. They may maintain bases here but vital strategic decisions regarding future investment and employment are now taken in an office in another land. Their equally exciting spin-offs also occur overseas.

They’ve departed, too, in many cases without realising anything like their potential in the UK. They’re start-ups – the moment they’ve proved successful, they’re off.

It’s an outflow that is immensely damaging to the nation, to its economic wellbeing. For too long, politicians have sat back and done precisely nothing. They’ve watched as one by one British enterprises have been snapped up by foreign buyers, or they’ve rejected the London Stock Exchange for a market in a rival global centre.

Not only are high-growth start-ups affected – some of our best-known, historic brands have journeyed down this same path.

Expect this trend to fall into sharp focus again as the row intensifies as to who should own The Daily Telegraph. It’s a newspaper and they are treated differently, so an official review is being held, but the result could well be the same, with one of our leading titles coming under the ownership of a foreign group.

In its case, politicians from all sides have jumped up and down, declaring their anguish at the paper being bought, possibly by a sovereign Middle East buyer. As I say, newspapers are different and whenever they change hands, the identity of the new owner merits scrutiny.

So, an exception can be made for the Telegraph, but the fact is it’s a bit late to be getting heated now about foreigners purchasing our finest assets.

The UK has become what Stephen Welton, the new chair of the British Business Bank, describes as an “incubator economy”, that builds up new companies only for them to be sold off to overseas buyers. Welton tells the Financial Times that the UK’s economic development bank wants to fund “the big, significant companies of tomorrow.”

Says Welton: “We’re developing these companies, and then they’re being acquired, either... by corporates — often US corporates, but not exclusively — or they’re being acquired by US investors, who then redomicile the business. We don’t want to be an incubator economy taking all the risk of these very, very tiny companies, and then not able to capitalise on that by following through with the scale-up capital to turn some of those into true global companies.”

We’re very good at the beginning of the process, having the bright idea and getting a business up and running. Indeed, time and again, that part is lauded by politicians hailing British creativity, innovation and our excellent universities. Down the years, Britain has led the world in so many areas and rightly that track record deserves acclaim.

What they’re less keen to explore is what happens next, when the company begins to climb the ladder. Then, too often, that’s where the British involvement in its upward trajectory ends. A foreigner swoops and that world-beater is no longer ours.

One recurring reason is the difficulty of securing funding. British investors are not so nimble, not so adept at moving quickly. We worry too much about the prospect of failure – regarding bankruptcy as a mortal, reputational blow. It does not have to be that extreme – in the UK, any bad experience can be regarded as a black mark. In other countries, particularly the US, insolvency is seen as the price of ultimate success – it’s expected and understood.

They are joining an economic system that is set up to realise potential. Paperwork is less burdensome; everything happens quicker; the authorities want to bend over backwards to accommodate business, to hear and help resolve businesses’ concerns; recruiting the right people with the requisite skills is not a problem. Commerce, making money – these things are to be celebrated, whereas in the UK, they’re treated with disdain.

We’ve a hugely well-established and resourced pension fund industry. But pension funds stay well clear of start-ups and unlisted companies. The government is doing something about this, providing Welton’s bank with £7bn for a “growth fund”, which would invest in businesses supported by the bank and into which pension funds could pump their cash.

It’s not enough though, and concerns are bound to arise over the likelihood of returns for savers.

Frequently, the money is there – it’s the process of accessing it that is far too cumbersome, requiring copious form-filling and interviews. That all takes precious management time, without any guarantee of obtaining the funding, so it’s understandable that they choose an easier option of falling into the embrace of a new foreign owner with oodles of cash.

Politicians must stop pontificating and begin doing. They must make the tools available for British companies to develop and prosper, while remaining British. It’s not just down to them – the City needs to change its mindset and be less risk-averse, more visionary and courageous. As a society, we also must shift and appreciate it’s far better to try and fail than to not try at all.